Today's Loan Jungle

Well, I now see that we should definitely undergo the loan process in some manner right now, because no matter how excruciating we find the process to be when we represent our clients, it is about 100 times more excruciating when we have to go through it ourselves.
I have often said that to be good Realtors, we should buy or sell property ourselves every now and then so we truly understand what our clients go through. Well, I now see that we should definitely undergo the loan process in some manner right now, because no matter how excruciating we find the process to be when we represent our clients, it is about 100 times more excruciating when we have to go through it ourselves.
I started about a month ago to accomplish a refinance on my own home to see if I could lower my interest rate and consolidate a fairly crummy equity line and a perfectly nice first mortgage into a bearable 30-year fixed loan. The equity line people were offering to reduce the balance by 10%, up to $10,000, if I could pull this off by April 30, 2010. Oh, wait a minute, that’s past!  
Of course I would have refinanced a long time ago if my house could have appraised for enough to do it. Here’s the little Catch-22 about the lending world: they like for you to owe less on your home than it is worth by at least 20% before they give you a new loan. No matter that your interest rate is high, your payment is high and it is due to adjust higher in about 6 months, making it even more unaffordable. Even if you want to refinance with the same company to lower your payment so you can still make the payment, they don’t want to lower your payment until they see that you are good for the dough. I can understand part of this thinking. And I am not trying to do a loan modification or a short sale! But they are very reluctant to change the terms of my loan because they want to make sure I’m a good risk!
So here we are today, April, 2010, and the big hurdle about the value of my home is resolved. The appraisal came in high enough to justify the value of my home in relation to the amount I owe. No matter that I have never missed a payment nor even been late on a payment, but it’s still good news.
But now that the appraisal is ok, the underwriter is still not so sure I/we are okay. Mind you, we have FICO scores in the high 700s and have had throughout the years including even the last 2 years when my income dropped and business was not what it was, though not so terrible compared to many others. We have supplied our 2007 and 2008 tax returns, verifications of our bank accounts and investment accounts, proof of our income for 2009 and so far in 2010. Bank statements. Credit reports. Investment statements. Now we are down to the brass tacks. Last week they asked for a copy of the extension we filed for the 2009 taxes. This week they want a Profit & Loss statement for 2009. Why didn’t they ask for this last week?                     
Omigosh, I am in the business and I am getting really upset about all this. I can only imagine what my clients are going through. ( Except for the seller who keeps telling me that his lender got his loan on his purchase in the Valley completely approved and loan docs ordered in 6 days! My goodness, I must be tied up with a bunch of incompetents)!
I think one of the big issues is the self-employed person. If you are on a salary, it’s not difficult to verify what your income is and how long you have made it. We entrepreneurial folks are the ones who have 1099s from one or more places, “business expenses” noted on our tax returns, many items to “question.” That’s why “stated income” loans were so popular when they were possible, because they just looked at your credit score and your bank account and decided if you were good to go. They did cost a slightly higher interest rate, however, so I never have personally gone with a stated income loan. I’ve always gone full documentation—so I am comparing apples to apples about this process. And let me say very clearly, getting a loan in 2000, 2003, and in 2007 was a lot easier than getting one in 2010!
My mortgage broker tells me this: “I understand your frustrations. Believe me I try to be as thorough as possible with all of our clients, but just when you think you have everything they come back with something else. Requirements change so much due to the all the buy backs that Fannie and Freddie are putting on all of us lenders to be responsible for, and no one wants to get stuck with buying a loan back. As crazy as this sounds, I just received a call from FHA Santa Ana a few days ago on a transaction that we closed and funded in October that they are requesting a copy of the business license for the client who was self employed. This is almost 8 months later. Crazy, and there are many stories like this, unfortunately.”
So there you are. If you work for wages and have a fairly simple financial picture, it’s one thing. If you are anything else, you are going on the financial disclosure roller coaster ride if you want to buy or refinance a house with a lender today. This is why cash is king.